Income Tax is levied on a person who was in India for 182 days during the previous tax year or the person who was in India for at least 60 days during the previous tax year and for at least 365 days during the preceding 4 years will be taxed.
If you earn and draw a salary then a portion of it is going to be taxable. Depending on your annual income and the tax regime selected by you, you can calculate the amount taxable.
It is essential to gather all the details required to file your Income Tax Returns before computing your taxable income on salary. You will then have to calculate your total taxable income, followed by the calculation of final tax refundable or payable.
Following is the procedure for the calculation of taxable income on salary:
Once your net income has been calculated, the following tax slabs will be applicable:
Net Income | Income Tax Rate |
Up to Rs.2.5 lakhs | Nil |
Rs.2.5 lakhs to Rs.5 lakhs | 5% |
Rs.5 lakhs to Rs.10 lakhs | 20% |
Above Rs.10 lakhs | 30% |
Net Income | Income Tax Rate under new regime |
Up to Rs.2.5 lakhs | Nil |
Rs.2.5 lakh to Rs.5 lakh | 5% of the total income that is more than Rs.2.5 lakh |
Rs.5 lakh to Rs.7.5 lakh | 10% of the total income that is more than Rs.5 lakh + Rs.12,500 |
Rs.7.5 lakh to Rs.10 lakh | 15% of the total income that is more than Rs.7.5 lakh + Rs.37,500 |
Rs.10 lakh to Rs.12.5 lakh | 20% of the total income that is more than Rs.10 lakh + Rs.75,000 |
Rs.12.5 lakh to Rs.15 lakh | 25% of the total income that is more than Rs.12.5 lakh + Rs.1,25,000 |
Above Rs.15 lakh | 30% of the total income that is more than Rs.15 lakh + Rs.1,87,500 |
However, in addition to the tax slabs mentioned above, the Finance Minister of India, Nirmala Sitharaman has announced a new optional tax slab for individuals. The new income tax slab is an alternative and can be used instead of the existing system. The new tax slab can be summed up as follows:
Net Income | Income Tax Rate under new regime |
Up to Rs.3 lakhs | Nil |
Rs.3 lakh to Rs.7 lakh | 5% of the total income that is more than Rs.3 lakh |
Rs.7 lakh to Rs.10 lakh | 10% of the total income that is more than Rs.7 lakh + Rs.15,000 |
Rs.10 lakh to Rs.12 lakh | 15% of the total income that is more than Rs.10 lakh + Rs.45,000 |
Rs.12 lakh to Rs.15 lakh | 20% of the total income that is more than Rs.12 lakh + Rs.90,000 |
Above Rs.15 lakh | 30% of the total income that is more than Rs.15 lakh + Rs.1,50,000 |
Note: The tax slabs mentioned above are optional and can be used instead of the existing tax slabs. Individuals can also file their taxes on the basis of the previous income tax slabs.
Given below is an example of how income tax is calculated under the new regime (optional):
Components | A | B | C | D | ||
Annual Salary (Rs.) | 3 lakh | 7 lakh | 10 lakh | 15 lakh | ||
Computation of tax on the gross total income | ||||||
Up to Rs.3 lakh | Nil | Nil | Nil | Nil | ||
From Rs.3,00,001 to Rs. 7 lakh | Nil | 12,500 | 12,500 | 12,500 | ||
From Rs.7,00,001 to Rs.10 lakh | Nil | - | 25,000 | 25,000 | ||
From Rs.10,000,01 to Rs.12 lakh | Nil | - | 37,500 | 37,500 | ||
From Rs.12,00,001 to Rs.15 lakh | Nil | - | - | 62,500 | ||
Above Rs.15 lakh | Nil | - | - | - | ||
Total Tax Amount | Nil | 12,500 | 75,000 | 1,87,500 | ||
Additional Cess (4%) | Nil | 500 | 3,000 | 7,500 | ||
Total payable tax amount | Nil | 13,000 | 78,000 | 1,95,000 |
Note: The calculation in this table is based on the new optional tax regime which has been announced on 23 July 2024.
If an individual decides to file his or her taxes according to the new income tax regime, the following things are to be kept in mind:
That said, the calculation of the taxable income as per the new income tax regime will be very straight-forward and will be calculated as a direct percentage of the income earned by an individual.
The next step involves considering various deductions available under Chapter VI A of the Income Tax Act from your gross taxable income. For instance, section 80C allows deductions of up to Rs. 1.5 lakh against investments and expenses. This includes payments for:
Contributions to pension funds under section 80CCC and NPS under 80CCD (1) also fall under the Rs. 1.5 lakh deduction limit. There are other deductions as well:
After making all the applicable deductions, you will arrive at your taxable income from your salary. The income tax rate will be based on the tax slab applicable for the assessment year. You can use a Tax Planning calculator to determine the amount of tax you need to pay based on your investments and income. You can conveniently ensure timely tax payments, as many banks simplify the process through Net Banking.
You can log in to your Net Banking account to pay various taxes. Please be mindful that deductions and tax rates may differ depending on the tax regime you select, either the existing tax regime or the new tax regime. For expert guidance on investment and tax-related matters, consult your financial advisor to maximise the benefits of available tax-saving opportunities.
Salary is the remuneration paid by the employer to the employee for the services rendered for a certain period of time. It is paid in fixed intervals i.e. monthly one-twelfth of the annual salary.
Dictionary meaning: Usually a form of earning or profit, provided by an employer to his/her employee. This generally comes in the form of an incentive in addition to the regular pay. This amount of money, defined as salary is the right of an employee for rendering his/her services to the employer.
Meaning as per the guidelines of the Income Tax Department: Section 17 (2) of the Income Tax Act, 1961, defines salary as the worth of an accommodation that is free of rent, from an employer to an employee.
Most often than not, salaried individuals are faced with the dilemma of determining which allowances will be taxable and which will not be taxable, and also consider the kind of implications that the tax liability might bring in. Companies and organizations often provide allowances to their employees that are of a specified nature or for a specific cause. The primary and the most important thing to do here is to check the nature of the allowance offered.
There are a handful of deductions that are allowed under salaried income. These vary in nature from perquisites and profits.
Earlier, under Section 16 of the Income Tax Act, 1961, a standard deduction was allowed to salaried professionals. However, it was discontinued from the assessment year 2005-06.
A deduction of Rs.5000 is offered as an entertainment allowance while computing the gross salary of an individual. It is one of the primary elements that is taken into consideration while gross salary is calculated. However, this provision can only be enjoyed by Government officials.
According to Section 16(ii) of the Income Tax Act, if an employee is receiving an entertainment allowance, the amount will first be dished out along with the basic salary of the person. Thereafter, will it be considered for deduction. This particular allowance will occupy one-fifth of the person's salary and will be totally exclusive of other allowances and benefits.
Payment of Professional Tax by the employer: The Central and State Government levies a certain tax, known as professional tax, on individuals having salaried incomes, trades, employment and callings. This professional tax amount does not surpass Rs.2500 in a year.
According to Section 16(ii) of the Income Tax Act, 1961, a taxpayer has complete authority to claim a tax deduction with respect to the professional tax that he/she is paying to his/her employer. However, this deduction will only be allowed on the same year as the taxpayer pays the tax. An overdue professional tax cannot be considered for deduction, whatever the case may be.
Net Pay: The portion of money received by an employee after the total amount has been withheld for state and federal tax deduction is fundamentally what ''net pay'' stands for. Therefore, to put it in layman's terms, the amount of money that comes in an individual's paycheck is what net pay is.
Given below are the steps to calculate employee's net pay:
The amount of your income that will be subjected to Income Tax deductions is essentially what taxable income stands for. Although most of the incomes are taxed according to the tax bracket that the individual falls under, it is important to note that sometimes certain incomes are partially taxable or not taxable at all.
Allowances that are wholly taxable - Dearness allowance, city compensatory allowance (only concerns people moving to or living in metros like Delhi, Mumbai, Chennai and Kolkata), and OA (overtime allowance)
Allowances that are partially taxable - These include House Rent Allowance (HRA), other allowances and entertainment allowance.
Allowances that are tax-free - This category comprises of foreign allowances (concerning personnels operating from a different country altogether), allowances enjoyed by supreme and high court judges and so on.
Given below is an example of a structure of a salary to grasp a better understanding of taxable and non-taxable income.
Yearly Salary that is Taxable | Salaried Income | Tax exemption | Total Taxable Income |
Basic Pay | Rs.8,00,000 | N/A | Rs.8,00,000 |
House Rent Allowance | Rs.3,00,000 | Rs.1,72,000 | Rs.1,28,000 |
Other Allowances | Rs.60,000 | N/A | Rs.60,000 |
LTA (leave travel allowance) | Rs.20,000 | Rs.12,000 | Rs.8000 |
Other standard deductions | - | Rs.15,000 | - |
Total Gross Salary | Rs.12,91,000 | Rs.2,24,000 | Rs.10,67,000 |
The following deductions are available on the income from salary:
Please note that the standard deduction is not available for salary income from Assessment Year 2006-2007.
For computing Total income from various sources, the incomes are classified into:
This gives you an aggregate income. All the eligible deductions, allowance and reliefs are calculated on each heads.
Gross Total Income= A+B+C+D+E
Total Taxable Income= Gross Total Income- Deductions allowed from income
Total Tax Payable= Tax on Total Income- Rebates and relief allowed under Income Tax Act.
The Income Tax Act, 1961, has classified income into five heads. They are as follows:
The tax is deducted based on the slab, i.e., up to Rs. 3,00,000 is nil, from Rs. 3,00,000 to Rs. 6,00,000 is 5%, from Rs. 6,00,000 to Rs. 9,00,000 is 10%, from Rs. 9,00,000 to Rs. 12,00,000 is 15%, from Rs. 12,00,000 to Rs. 15,00,000 is 20%, and above Rs. 15,00,000 is 20%.
The tax is deducted based on the slab under the new tax regime, i.e., up to Rs. 3,00,000 is nil, from Rs. 3,00,000 to Rs. 7,00,000 is 5%, from Rs. 7,00,001 to Rs. 10,00,000 is 10%, from Rs. 10,00,001 to Rs. 12,00,000 is 15%, from Rs. 12,00,001 to Rs. 15,00,000 is 20%, and above Rs. 15,00,000 is 30%.
Taxable income or gross income or adjusted gross income includes salaries, wages, bonuses, etc. along with unearned income and investment income. It is the amount that will be used to determine your tax liability.
The components of salary include dearness allowance, travel allowance, house rent allowance, and other reimbursements and allowances.
In case you receive a gift that is worth more than Rs.25,000, you will be liable to pay tax on it unless you get the said gift from a relative, or if you get the gift on the occasion of your wedding. Even gifts received under a will or through inheritance are exempt from tax.
Income from other sources includes interest income, taxable gifts, dividend income, etc.
Yes, both you and your spouse can claim LTA but not for the same trip. However, you can avail this benefit only if you have opted for the old regime.
Yes, If the amount exceeds Rs.50,000, then it will be taxable.
If the house in the name of your parents, then you can pay them rent to claim HRA. However, if you choose the new regime then you cannot avail the HRA benefit.
You can claim a deduction of up to Rs.1.5 lakh under Section 80C.
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